For Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) followers, the Bureau’s advanced notice of proposed Regulation F seeking comment on potential rules under the Fair Debt Collection Practices Act (“FDCPA”) should come as no surprise. The breadth of the planned rulemaking, however, could fundamentally change how third-party debt collectors, first-party creditors collecting consumer debts, debt buyers, and vendors providing material assistance to collectors (such as payment system or technology providers) collect mortgage, credit card, student loan, auto, medical, and other consumer debt.

Proposed Regulation F is merely a part of a larger trend. In the last year and a half, the CFPB has issued a rule defining a nonbank covered person (one with more than 10 million dollars in receipts from consumer debt collection of consumer financial products or services) as a “larger participant” subject to CFPB supervision; created special examination procedures applicable to those larger participants; issued two bulletins clarifying debt collector obligations (one providing additional detail as to what constitutes unfair, deceptive, or abusive acts or practices (“UDAAPs”) as described under the Dodd-Frank Act, and the second specifically describing and prohibiting certain misleading misrepresentations to debtors regarding the effect of debt payments on credit reports, scores, and creditworthiness); and brought and settled a major public enforcement action related to a company’s debt collection practices. In addition, the CFPB recently began accepting complaints related to debt collection activities, logging over 5000 complaints in a four-month span from July 10, 2013, to the present, representing approximately 30 percent of the CFPB’s daily complaint volume.

Concerned with these statistics, the CFPB is issuing a call to consumers, debt collectors, and industry professionals to aid the CFPB in creating rules to police the debt collection industry. As this is an advance notice, it does not contain any concrete proposed rules, but rather solicits information by asking 162 separate sets of specific questions on issues affecting the debt collection industry, information about current practices, and suggestions for improvements. Chief among the significant issues, the CFPB is considering whether the rules should address the following, or whether such changes are best effectuated by statute or other guidance:

• The CFPB indicates rulemaking may cover first-party creditors, those providing “substantial assistance,” and considers how to define key terms: The CFPB solicits comments on whether the rules should cover the conduct of creditors collecting their own debts. The Bureau also indicates that they may begin to hold liable any person for “knowingly or recklessly providing substantial assistance” to a covered person violating the UDAAP provisions of the Dodd-Frank Act. While the power to enact such a regulation comes directly from the statutory text, the reach of this provision is unclear since the Dodd-Frank Act does not define “substantial assistance.” The CFPB thus requests comment on who “provides substantial assistance” to debt collectors. The Bureau also asks whether the rules should define terms used but undefined in the FDCPA, such as “collector,” “regularly collects or attempts to collect,” and “in default,” the meaning of which could substantially change the scope of the FDCPA and its exemptions (for example, the extent of the de facto employee exemption historically recognized by the Federal Trade Commission (“FTC”)). The Bureau recognizes that debt that does not involve a consumer financial product or service or an extension of credit (e.g., medical debt, tickets, or fines) is not subject to the Dodd-Frank’s Act prohibition on UDAAP but remains subject to the FDCPA, and asks whether certain types of debt should be excepted from part of the rulemaking.
• The CFPB considers creating national standards, a centralized depository, and additional disclosures to ensure accurate information is transferred to debt buyers and third-party collectors: Noting that “it is widely recognized that problems with the flow of information in the debt collection system is a significant consumer protection concern,” the CFPB asks whether it should establish national standards regarding what information related to a debt should be transferred to a third party when the debt is sold or placed for collection with that third party. The CFPB also seeks comment on whether a centralized repository of information and documentation of consumer debts should be established and who should be able to access that information, which may give rise to significant privacy concerns. Although the FDCPA does not require any notification to a consumer when a consumer debt is sold or transferred to a third party for collection, the CFPB seeks comments on whether consumers should be able to access information in a repository and/or whether disclosures, similar to those in the mortgage space, should be required when a consumer debt is sold or transferred.
• The CFPB considers whether greater clarity is needed surrounding the FDCPA’s content, format, and the delivery of debt validation notices: Section 809 of the FDCPA regulates debt validation notices and requires two pieces of information related to identifying the debt – the current owner of the debt and the amount of the debt. The Bureau seeks input on three alternatives with varying degrees of detail for itemizing the total amount of the debt, and asks what other information should be added to the debt validation notice to aid consumers in recognizing the debt. The CFPB also seeks input on the delivery (i.e., electronic delivery) and format of the validation notice, including how to address the FDCPA’s prohibition of “overshadowing” (i.e., a debt validation notice must not be overshadowed or contradicted in form or content by other language in the collection letter or other correspondence sent within the validation period). Additionally, the Bureau asks for input on the adequacy of the two statements debt collectors are required to disclose under Section 809 of the FDCPA regarding the consumer’s right to dispute the debt. With federal courts split on the issue of how a consumer must dispute a debt, greater clarification would be welcomed (the Third Circuit only recognizes written disputes as valid (Graziano v. Harrison; Caprio v. Healthcare Revenue Recovery Group, LLC), while the Second and Ninth Circuits have held that a consumer may dispute a debt orally or in writing (Hooks v. Forman, Holt, Eliades & Ravin, LLC and Camacho v. Bridgeport Fin. Inc., respectively)).
• The CFPB considers imposing a reasonableness standard regarding investigation of collection disputes and verification of debts: Currently, upon receipt of a dispute, debt collectors are required only to confirm in writing that the amount being demanded is what the creditor is claiming is owed.  The Bureau seeks input on whether it would be beneficial to consumers to require more out of the verification process, for example whether it might be beneficial to require that a debt collector conduct a “reasonable investigation” into whether the debt is in fact the consumer’s. This has been proposed by other organizations in the past, including by the Association of Credit and Collection Professionals (“ACA”) in their 2011 “Blueprint for Modernizing America’s Consumer Debt Collection System.” The Bureau asks what steps debt collectors should be required to take to investigate a dispute, and whether a “reasonableness” standard would be sufficient, or whether the Bureau should issue more detailed and specific steps. The Bureau also invites comment on whether any required investigation should change based on the type of dispute.
• The CFPB solicits comment on the use of newer technologies used to communicate with borrowers under the FDCPA or UDAAP laws: According to the CFPB, despite existing provisions in the FDCPA regulating communications with consumers and third parties, the most frequent debt-related complaint is debt collectors calling borrowers repeatedly and continually. For this reason, the Bureau seeks comments on how to improve communications in debt collection. The FDCPA, enacted in 1977, does not contemplate newer technologies, such as recorded phone messages, caller ID, autodialers, predictive dialers, smart phones, fax machines, or social media. Many of the complaints received by the CFPB are related to circumstances where, when a call from a debt collector is answered, there is no collector on the line, or the call drops the answering consumer. This happens due to the use of predictive dialers (in use by over 50 percent of the ACA, according to the notice), where if a consumer answers a call and there is no collector representative available, the call is either dropped or left with dead air. The CFPB requests comment on whether it should promulgate additional rules regarding the use of predictive dialers, as well as comment on any other technologies for which the CFPB should clarify the application of the FDCPA or UDAAP laws.
• The CFPB considers how the Bureau’s authority under the Dodd-Frank Act to prescribe rules regulating unfair, deceptive, or abusive actions or practices in connection with a transaction for a consumer financial product or service should be utilized in this rulemaking: As noted above, the CFPB has already issued a bulletin on this subject, but they request comment on how the forthcoming rulemaking could further clarify these significant issues.
  • Abusive: The Dodd-Frank Act authorizes the Bureau to label a practice “abusive” if it interferes with the ability of a consumer to understand a term or condition or takes unreasonable advantage of (i) a lack of understanding on the part of the consumer, (ii) the inability of the consumer to protect their interests, or (iii) reasonable reliance by the consumer that a covered person is acting in the consumer’s interest. Relatedly, the FDCPA prohibits collectors from engaging in any conduct “the natural consequence of which is to harass, oppress, or abuse any person in collection of a debt.” The Bureau requests comment on whether it should include examples from the FDCPA in its prohibition of abusive acts and practices. In particular, the use of predictive dialers, discussed above, is one in which the CFPB requests comment on whether such tools are used in an abusive manner.
  • Deceptive: Though the Dodd-Frank Act does not define deceptive acts, the FDCPA prohibits “false, deceptive, or misleading misrepresentation[s] or means in connection with the collection of any debt.” The Bureau interprets deceptive acts in light of the FTC definition, and defines deceptive acts as those where a material misrepresentation is likely to mislead a consumer, considered from the viewpoint of a reasonable consumer. The Bureau requests comment on whether it should adopt wholesale the prohibitions in the FDCPA, which prohibit 16 specific examples of deceptive behavior, or whether it should clarify or supplement any of the provisions. The Bureau also requests comment on whether there are any additional practices that it should prohibit as deceptive acts.
  • Unfair: According to the Dodd-Frank Act, practices are “unfair” if there is a reasonable basis to conclude the practice “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers,” and such injury is “not outweighed by countervailing benefits to consumers or to competition.” Substantial injury typically takes the form of monetary harm, such as fees paid due to the unfair practice. For example, collecting an amount not expressly authorized by the agreement creating the debt or permitted by law may be considered an unfair practice. The FDCPA also prohibits unfair methods of collection, and sets forth eight specific examples of such conduct. The Bureau requests comment on whether it should incorporate the FDCPA’s examples of unfair practices into its rule, and whether it should clarify or supplement any of those provisions, as well as whether there are any additional practices that should be prohibited. The CFPB also references relatively new methods of communication (text messages and mobile phones), which were not in usage at the time of enactment of the FDCPA, and asks whether new rules should prohibit or curtail the ability of collectors to utilize these forms of communication, particularly if the consumer may incur an additional cost for use of the communication (for example, where the consumer’s phone company charges them on a per-text basis, and the collector text messages the consumer regarding a debt).
• The CFPB contemplates rulemaking to address the collection of time-barred debts: The Bureau is concerned with existing practices of collecting time-barred debts, i.e., debts older than the applicable statute of limitations, or the consequences of making a partial payment on a time-barred debt, which may revive the statute of limitations on the entire debt under state law. The Department of Justice, on behalf of the FTC, brought an enforcement action in 2012 on this issue and, as part of the consent order, required a disclosure that consumers cannot be lawfully sued if they do not pay time-barred debts. The CFPB seeks comment on whether the rulemaking should impose disclosures on time-barred debts.
• The CFPB contemplates imposing monitoring and record retention requirements: With authority under the Dodd-Frank Act to prescribe rules regarding registration requirements of covered persons, the Bureau asks whether a national registry for collection firms and/or individual debt collectors should be established, similar to the Nationwide Mortgage Licensing System and Registry currently used to license mortgage loan originators and other state licensees (including debt collectors in some jurisdictions). While the FDCPA does not currently impose record retention requirements, the CFPB seeks input on whether the proposed rules should impose such requirements, and if so, what records should be required to be maintained in connection with collection activities, and for how long should the records be maintained
• The CFPB requests comment on how other laws will interact with the forthcoming rule: Throughout the rulemaking, the Bureau recognizes that debt collectors are subject to other laws, including the Fair Credit Reporting Act, Servicemember Civil Relief Act, Telemarketing Sales Rule, E-Sign, and the CFPB’s new mortgage servicing protocol housed in the Truth in Lending Act and the Real Estate Settlement Procedures Act, whose provisions could conflict with the new rules. The CFPB also recognizes that the rules could raise privacy and data security concerns.  In addition, though the CFPB mentions bankruptcy only tangentially, the Bankruptcy Code may raise unique issues. The majority of states also regulate debt collection practices at the state level and the state law may contain differing requirements from any CFPB rule under consideration. Each of the laws noted above has the potential to conflict with a proposed Regulation F, depending on the circumstances, or at the very least may add confusion through the implementation of a differing additional set of standards. The CFPB, aware of this concern, requests comment on the interaction of Regulation F with other areas of federal and state law.

Each of the above items individually has the capacity to effect extensive changes in the debt collection industry. A simultaneous modification of all of them, however, promises to completely revolutionize the process and requirements of debt collection and, therefore, it is paramount that comments be provided to the CFPB. Comments can be submitted in one of two ways: either through a formal response, or by submitting an informal comment electronically to RegulationRoom.org. The deadline for comments is February 10, 2014. As always, we would be happy to answer any questions regarding this notice and, of course, to aid in drafting any comments.